Fed’s Yellen: Balance Budget Effort in 1990s Set Model for This Congress

Janet Yellen said Congress should look toward the deal struck in the 1990s as a guide for how to reduce federal spending without harming the economy.

President Bill Clinton and Republican lawmakers balanced the federal budget in a way “that I think would set a model for this Congress,” Ms. Yellen said during the hearing before the Senate Banking Committee to be the next leader of the Fed. She was an economic adviser to President Clinton.

“We didn’t see an adverse impact because fiscal tightness was phased in over a number of years,” she said.

That stands in contrast to the current Congress. Lawmakers allowed deep, across-the-board budget cuts to come into place earlier this year and have so far failed to reach a broader consensus on tax and spending policy.

“Some of the near-term reductions in spending that we have seen have certainly detracted from the momentum of the economy and demand,” she said.

Ms. Yellen said it would be helpful “for deficit-reduction efforts to focus on achieving gains in the medium-term horizon while not subtracting from the impetus that we need to keep a fragile recovery moving forward.”

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